​ADVERTORIAL

On September 14, 2023, the IRS announced a processing moratorium (not a filing moratorium) on newly filed Employee Retention Credit (ERC) claims, projected to last until at least the end of 2023. Understandably, many long term care facilities (LTCFs) have questions and concerns about what the moratorium is and how it impacts ERC claims—filed or unfiled. Let’s take a look at how we arrived here and our recommendations for LTCFs at all stages of the process.   

Why Is Processing in Time-Out?

Briefly, the ERC is a refundable payroll tax credit for businesses, including LTCFs, that retained employees and were affected during the COVID-19 pandemic. While it is only available to eligible employers for certain periods in 2020 and 2021, businesses may still have time to claim the ERC retroactively. It’s important to recognize that the ERC is complex, but when properly claimed, we have seen firsthand how it has been a lifeline for thousands of LTCFs around the nation.

Undoubtedly, when the ERC was implemented in early 2020, all kinds of businesses and the IRS were being impacted by the pandemic in numerous ways. Businesses were failing and jobs were at stake. But it’s easy to forget that the IRS was also confronting the direct effects of the pandemic in its own operations and among its own personnel.

Moreover, the IRS was charged with not only administering ERC, but also issuing rounds of Economic Impact Payments, and managing business as usual (amplified by a noticeable uptick in anxious taxpayer communications). Considering these circumstances in conjunction with the ERC’s complex nature, it is not surprising that the IRS, tax professionals, and business owners were all generally late in the game to recognize the full scope of the benefits of the ERC.

By January 2023, however, millions of ERC claims had been filed, and the IRS believed it had seen enough fraudulent claims and unscrupulous “ERC mills” to warrant heightened scrutiny. Concurrently, the IRS increased its enforcement efforts directed at fraudulent claims and issued a flurry of new warnings about potential scams and bad actors. In the summer of 2023, the IRS shifted a significant portion of its resources to clear the ERC backlog (at that time, approximately 800,000 claims) so that it could more carefully scrutinize the incoming claims. 

Of course, a ticking clock adds pressure on both sides. While employers—especially those who are only now learning about the credit—may feel a time crunch to review the complex credit with a trustworthy preparer and get everything filed within those limits, the IRS undoubtedly fears the time remaining is long enough to exponentially increase the number of fraudulent filings. Under current law, employers may only file amended returns to claim ERC for 2020 periods until April 15, 2024. For 2021 periods, employers have until April 15, 2025. Significantly, excluding the 3rd and 4th quarters of 2021, those same deadlines apply to the IRS’s ability to assess additional tax for a potential erroneous ERC claim. For the 3rd and 4th quarters of 2021, the IRS may assess until April 15, 2027. 

All of the above brought us to the moratorium.  According to the IRS:

IRS Commissioner Danny Werfel ordered the immediate moratorium, beginning [September 14, 2023], to run through at least Dec. 31 following growing concerns inside the tax agency, from tax professionals as well as media reports that a substantial share of new claims from the aging program are ineligible and increasingly putting businesses at financial risk by being pressured and scammed by aggressive promoters and marketing.¹

The IRS clarified in its moratorium announcement that it is continuing to process ERC claims filed before the moratorium (but at a slower pace than before), but the processing of newly filed claims is halted until at least the end of the year.

What Should LTCFs Do Now?

It’s important to remember that you may still file for the ERC, but depending on your circumstances, we recommend the following courses of action:

• LTCFs Waiting for Payment. For LTCFs that filed an ERC claim, or claims, before the moratorium, the IRS will continue to process the claim(s). Due to intensified compliance scrutiny, those LTCFs should anticipate a slower processing pace.
• LTCFs Considering Filing. There are still many LTCFs that may be eligible for ERC relief. With less than 6 months remaining to file for 2020 ERC claims, it’s imperative that LTCFs consult with a trusted tax professional as soon as possible. LCTFs must be careful to avoid abusive tax promoters and “ERC mills.” Every ERC claim must be aligned with the statute and guidelines—it’s a complex analysis which can result in serious IRS complications if mishandled.
• Concerned LTCF Filers. LTCFs that have already filed but are concerned about their claims for any reason, should seek guidance from a trusted tax professional. Just this month, the IRS issued details of its ERC Withdrawal Process. The process permits certain filers to withdraw claims as if they never filed them at all, avoiding both penalties and interest. For instance, many early filers didn’t have the benefit of later IRS clarification regarding supply chain issues. Now is the time to reflect with a professional on the basis of the claim.
• LTCFs and Erroneous Payments. If an LTCF believes that it received an ERC payment in error, the IRS has announced that a settlement program is forthcoming. While we wait for details, we can only note that it will allow a business to repay an ERC claim and potentially avoid penalties and further unwanted action.
• Prepare and Substantiate. The IRS is clear that during the moratorium, many filers should expect to receive requests for substantiation to back up elements of their claim. Unfortunately, we are aware of the fact that many of the companies preparing ERC claims for LTCFs neglected to assist with this part of the process. For instance, government orders were not compiled and attached to a memorandum that detailed the basis of the claim. LTCFs should consult with a trustworthy professional now, prepare for IRS information requests, and ensure that they have the necessary documentation readily available.

Conclusion

Remember, there is less than 6 months left to file for the ERC for 2020. Whether you are just now learning about ERC or have already filed a claim and feel like a second look is prudent, we urge you to engage an experienced tax professional to examine your claim. The moratorium reinforces the need for a trustworthy tax professional, equipped with industry specific knowledge, to be involved at all stages of the process. 

If your LTCF has any ERC needs, contact our team at (410) 863-3575 or schedule a confidential consultation today.

Mary Lundstedt, Esq., is director of legal analysis at Frost Law. She is based out of Annapolis, Md., and can be reached at Mary.Lundstedt@AskFrost.com.

Reference
1. IR-2023-169 (Sept. 14, 2023).